Iowa Land Auction Prices, December 30, 2016-January 5, 2017

Greetings & Happy New Year! This past week was pretty slow for land auctions in Iowa due to the holidays with only two land auctions. There were a total of 136 acres offered at auction, of those acres, 125 were tillable. There was not enough land sold to really test the market. Here are the highlights:

As 2016 goes into the record books, I want to bring up a few things for you to think about in regards to the Iowa land market going into 2017:

Record yields this fall were better than expected for grain prices, especially soybeans, and kept the market very stable. There were a lot of people predicting declines in land prices this spring & summer, and it just did not happen.

Low supply of land for sale and a lot of pent up demand to buy land kept land prices stable. (There was only a little over one farm for sale in each county in Iowa over 85% tillable).

Low interest rates were also a factor with no better alternative investment. However, since the election on November 8, interest rates on many financial instruments have increased. Interest rates since November 8 are likely not large enough to put much downward pressure on farmland prices. There are two reasons why rising interest rates put downward pressure on land prices: 1) increases in financing cost make it more expensive to debt finance land, and 2) rising interest rates signal higher returns on alternative investments, thereby making alternative investments more attractive than farmland.

Farm income will likely continue to decline next year with grain prices remaining near their lowest levels in about a decade. In the last three years, U.S. production has outpaced usage for corn and soybeans. Abundant inventories of corn and soybeans mean lower prices.

Crop production profitability is, and will always be, the primary force behind land prices. Low, even negative, profitability is expected next year and will keep downward pressure on land prices.

Land prices are still higher than they were the last time grain prices were at current levels. (Considerably higher!)

“That’s my story and I’m sticking to it!” Please check back next week to see what the Iowa land market is doing.